AVGO: AI Infrastructure Demand Will Support Future Upside Despite Multiple Reset

Our updated Broadcom view reflects a modest cut to the analyst price target of roughly $3, to about $453, as analysts factor in recent target reductions tied to AI valuation resets, questions around premium multiples, and competitive shifts in custom accelerators.

Analyst Commentary

Recent research on Broadcom has turned more balanced, with several firms trimming price targets while generally maintaining constructive views on the business and its role in AI infrastructure. For you as an investor, the key threads are how analysts are weighing AI demand, competitive risk in accelerators, and what multiple they are comfortable paying for that story.

Bullish Takeaways

Bullish analysts still see Broadcom as a core beneficiary of AI infrastructure spending, with expectations that AI related investment can help underpin semiconductor estimates into 2026 and 2027, even as share valuations reset.
Some research argues that concerns around gross margin pressure, tensor processing unit competition, and software exposure risk are largely reflected in the current share price, which they view as creating room for Broadcom to outperform if execution stays on track.
There is ongoing confidence in Broadcom's compute and networking exposure, with certain analysts remaining constructive on these segments as long term growth drivers for AI accelerators and related networking demand.
One firm recently lifted its price target on Broadcom while highlighting AI accelerators and optical as preferred areas in semis, grouping Broadcom alongside other large AI beneficiaries as a top pick for its 2026 outlook.

Bearish Takeaways

Price targets have been cut by several firms, often citing a broader reset in AI valuations and questions around how much of the AI story is already reflected in Broadcom's premium multiple.
Bearish analysts are increasingly focused on competition in custom accelerators and TPUs, including relationships that key AI customers have with other chipmakers, which could limit Broadcom's share of certain future deployments.
There is caution around the durability of specific AI customer demand beyond the near term, with some research pointing out that visibility into demand from names like Anthropic beyond the first half of FY27 is less clear.
Fresh coverage with a Neutral stance highlights valuation as a concern, questioning how long Broadcom can justify a premium multiple if AI orders or software related growth do not match current expectations.

What’s in the News

TSMC is described as hard pressed to meet strong AI chip demand, which can affect availability and lead times for Broadcom and other chip designers that rely on advanced manufacturing capacity (The Information).
Chinese authorities reportedly banned several software firms, including Palo Alto Networks and Fortinet, which keeps regulatory risk in focus for global tech suppliers and partners exposed to China (Reuters).
Broadcom began shipping what it calls the industry’s first 2nm custom compute SoC on its 3.5D XDSiP packaging platform, targeting AI clusters that need higher compute density, lower latency, and power efficiency.
The company announced BroadPeak, a radio digital front end SoC for 5G Advanced and future 6G networks, designed to support higher frequency bands and power efficient massive MIMO deployments for AI heavy applications.
Broadcom’s board approved a quarterly cash dividend of $0.65 per share for fiscal 2026, described as a 10% increase from the prior quarter, and the company issued guidance that points to expected first quarter fiscal 2026 revenue of about $19.1b.

Valuation Changes

Fair Value: trimmed slightly from $456.59 to $453.06, reflecting a modest reset in the analyst model.
Discount Rate: edged higher from 10.57% to 10.70%, implying a small increase in the required return used in the valuation work.
Revenue Growth: nudged up from 38.42% to 39.04%, signaling a slightly stronger top line outlook in the updated assumptions.
Net Profit Margin: eased from 45.21% to 44.61%, pointing to a modestly lower profitability assumption on future earnings.
Future P/E: adjusted fractionally from 39.16x to 39.00x, indicating a very small change in the valuation multiple applied to forward earnings.

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Key Takeaways

Accelerating AI chip demand and advanced networking products are boosting revenue growth, margins, and market share in core semiconductor segments.
Rapid VMware integration is fueling recurring software revenue and sustained margin expansion, while market diversification enhances future profitability.
Heavy concentration in AI customers, weak legacy segments, competitive threats, risky VMware integration, and high debt collectively pose significant risks to revenue diversity and profitability.

Catalysts

About Broadcom

Designs, develops, and supplies various semiconductor devices and infrastructure software solutions worldwide.What are the underlying business or industry changes driving this perspective?

Broadcom is experiencing accelerating demand for custom AI accelerators (XPUs) from hyperscale and large language model customers, underscored by the addition of a major fourth customer and a strengthened backlog, indicating robust multi-year revenue growth in the AI semiconductor segment.
The company's Ethernet networking and switching portfolio is capitalizing on the trend towards ever-larger and more complex AI compute clusters, with next-generation products (Tomahawk 6, Jericho4) addressing the need for higher bandwidth, lower latency networking, supporting higher ASPs and expanded market share, positively impacting both top-line revenue and gross margins.
Broadcom's successful integration and rapid enterprise adoption of VMware Cloud Foundation is enabling a transition to recurring software revenues, with over 90% of its top 10,000 accounts committed and ongoing deployment likely to drive sustained margin expansion in the high-margin infrastructure software segment.
Strong multi-year bookings, a record $110 billion backlog (driven primarily by AI), and disciplined capital allocation (R&D investments, high free cash flow, and dividends) build a foundation for continued earnings growth and per-share expansion.
Early signs of a cyclical recovery in non-AI semiconductor segments (particularly broadband), coupled with ongoing demand from IoT, cloud, and 5G/6G markets, position Broadcom for further revenue diversification and gradual recovery in overall profitability.

Broadcom Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Broadcom's revenue will grow by 25.9% annually over the next 3 years.
Analysts assume that profit margins will increase from 31.4% today to 42.5% in 3 years time.
Analysts expect earnings to reach $50.8 billion (and earnings per share of $11.0) by about September 2028, up from $18.8 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $34.6 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 45.8x on those 2028 earnings, down from 84.2x today. This future PE is greater than the current PE for the US Semiconductor industry at 33.5x.
Analysts expect the number of shares outstanding to grow by 0.93% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 10.13%, as per the Simply Wall St company report.

Broadcom Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Broadcom's rapid AI-driven revenue growth is highly concentrated among just four major custom XPU customers; any slowdown in spending, competitive shift, or self-sufficiency among these hyperscalers could materially impact future revenue and earnings stability due to customer concentration risk.
Sustained softness and slow, U-shaped recovery in non-AI semiconductor segments-such as enterprise networking, storage, and wireless-implies structural stagnation or secular decline; ongoing weakness here could reduce long-term revenue diversification and lead to lower aggregate margins as legacy businesses commoditize.
Increased competition from major US and Asian semiconductor firms in both custom silicon (ASICs/XPUs) and Ethernet-based networking threatens Broadcom's pricing power and market share; the need for continuous high R&D investment to "out-innovate" rivals poses risks to future net margin expansion.
Expansion into infrastructure software, especially the VMware integration, faces execution risk: successful customer deployment (particularly beyond top large enterprises), realization of advanced services upsell, and mitigation of potential commoditization remain uncertain, which may constrain software segment revenue growth and profitability.
Elevated financial leverage from acquisition-driven strategy ($66+ billion in debt) increases exposure to higher interest rates and leaves less flexibility in downturns; if integration synergies from acquisitions like VMware underdeliver or software sales do not scale, net earnings and shareholder returns could be pressured.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $360.199 for Broadcom based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $415.56, and the most bearish reporting a price target of just $218.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $119.6 billion, earnings will come to $50.8 billion, and it would be trading on a PE ratio of 45.8x, assuming you use a discount rate of 10.1%.
Given the current share price of $336.67, the analyst price target of $360.2 is 6.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.